36166 - Bandhan Banking Transformation

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Summary of Investment Information

Project Number

36166

Company Name

BANDHAN FINANCIAL SERVICES LIMITED

Date SPI Disclosed

Jan 15, 2015

Country

India

Region

South Asia

Projected Board Date

Feb 2, 2015

Environmental Category

FI-2 - Limited

Status

Active

Last Updated Date

Nov 30, 2016

Department

Regional Industry - FIG Asia & Pac

Industry

Financial Markets

Previous Events

Approved : Jul 12, 2016
Signed : Apr 24, 2015
Invested : May 5, 2015

Sector

Microfinance and Small Business - Non Commercial Banking

Project Description

The proposed project involves an equity investment in (i) Bandhan Financial Services Limited (“BFSL” or “Bandhan”) which is an existing IFC investee and (ii) Bandhan Bank, which is expected to start banking operations pursuant to the receipt of in-principle approval by BFSL to start banking operations and fulfillment of all the conditions in accordance with the Reserve Bank of India’s (“RBI”) guidelines for licensing of new banks.

BFSL, which is currently registered as an NBFC-MFI is India’s largest microfinance institution in terms of number of borrowers and portfolio outstanding. BFSL is headquartered in Kolkata, West Bengal with a borrower base of more than 6.1 million women borrowers and a loan portfolio of approximately INR78,100 million (US$1.3 billion equivalent).

The proposed project intends to support the transformation of Bandhan to become a universal bank focused on low income households. Bandhan, by transforming into a Bank proposes to expand and diversify its operations to include a range of products such as savings, remittances, payments etc. and proposes to gradually build one of the finest micro, retail and SME banking platforms in the country with a specific focus on the under-banked population.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan
Equity	92.97

Development Impact

1. Access to Microfinance: This Project will help in expanding the outreach of access to microfinance to borrowers who have little or no access to formal sources of financing.

2. Balanced growth of Microfinance: This Project will promote a more balanced growth of microfinance in India by increasing access to savings services for low income households and enable a wider range of credit products which could increase asset creation and job creation (through higher ticket loans for scaling up businesses) and increase access to housing and education finance.

1. Global Best Practices: IFC expects to help the Company in gearing up for becoming a bank by sharing global best practices in corporate governance, product design and other key functional areas such as treasury management and risk management

2. Demonstration Effect: IFC''s investment would underline the faith in the sustainability of the newly formed bank and attract other investors / lenders. An additional investment by IFC will benefit Bandhan further by demonstrating the validity of its operational and financial plan for transformation.

E&S Category Rationale / Risks and Mitigation

Bandhan is a Microfinance institution. With the start of banking operations, the entire micro-finance portfolio will be transferred to the Bandhan bank. The bank will continue to have majority of its exposure to the micro-enterprise and micro-finance portfolio, while new credit products will be launched. Over a period of time, the microfinance exposure will gradually reduce but will continue to lead the portfolio mix. The new credit products expected to be launched are low-medium risk products such as gold loan, home loan, commercial vehicles and equipment, agri loans, fisheries, education loans etc. Some of these are already existing products in the micro-enterprise portfolio of Bandhan MFI but the ticket sizes will increase going forward. In medium to long term, the bank also expects to get into corporate lending, although that is expected to constitute a very small part of the loan book at any given time. Overall, the existing and proposed lending portfolio present potentially limited adverse environmental or social risks or impacts that will be few in number, generally site-specific, largely reversible, and readily addressed through mitigation measures. Hence, the E&S risk of the proposed investment is medium and the project is categorized as FI-2. The applicable Performance requirements will be i) the IFC- FI Exclusion List; and ii) The host country E&S laws and regulations. The application of IFC Performance Standards to the loan portfolio will not be an immediate requirement and will be reassessed once the bank launches corporate/project lending.

Main E&S risk and impacts of the project emanates from the MSME financing product that the bank is expected to launch at the start of operations. The key E&S risks of such lending products primarily involve management of labour and contractor workforce, occupational health and safety and waste management. In long term the bank is expected to get into medium risk corporate lending such as working capital finance and wholesale banking. However, the overall exposure to corporates is expected to remain low.

As part of existing relationship with IFC, Bandhan has developed an E&S management system which currently addresses the low risk MFI portfolio. Going forward the bank will be required to upgrade the system to address E&S risks of MSME lending and corporate lending. The bank will also develop an external communication policy as per IFC Performance Standard 1.

In the process of restructuring, Bandhan has repositioned some of its staff in the core banking operations while majority of the staff will be in general banking operations handling the existing MFI portfolio. Bandhan has witnessed a smooth transition on this account and there have been no grievances in the process.

Task Title & Description	Actual Due Date	Status	Comments	Completion Date
Upgrade Applicable requirements		Rescheduled
Other1 HR policy		Completed	email notification and clarifications	02/01/2016

Contacts

For Inquiries About the Project, Contact

Arpita Sen
Bandhan Financial Services Pvt. Ltd.
EC 76, Sector 1, Salt Lake City,
Kolkata, West Bengal, India.
mailto:arpita.sen@bandhanmf.com

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